- According to Claire Medalie, liquidity in the crypto market has become more concentrated over time, with only eight trading platforms accounting for approximately 90% of global market depth and trading volume.
- Binance’s share of spot trading volume increased from 38.3% in 2021 to 64.3% in 2023. Interestingly, the total share of the top eight exchanges increased less dramatically, from 84.1% to 89.5%.
- The collapse of FTX worked in favor of Binance. The conclusion that can be drawn from this is that Binance was the only failure point for the industry. As a result, regulatory pressures and security breaches gradually affected the market value of crypto assets.
According to data from Kaiko, despite the existence of dozens of exchanges in the crypto world, only eight exchanges dominate the market.
Concerns About Dominant Exchanges in the Market
For an ecosystem that embraces libertarian decentralization ideals, the increasing centralization and dominance of a few crypto assets cannot be more severe. According to Claire Medalie, Research Director at Kaiko, liquidity in the crypto market has become more concentrated over time, with only eight trading platforms accounting for approximately 90% of global market depth and trading volume.
According to CMC’s data, although there are hundreds of crypto exchanges operating in different countries, this situation was surprising.
Market depth refers to a exchange’s ability to absorb relatively large market orders without significantly affecting the price of an asset. On the other hand, trading volume represents the total amount of a digital asset traded during a specific period. Both indicators are used to assess market liquidity.
Concentrated markets imply that liquidity is not evenly distributed among exchanges. According to Kaiko, such a situation can lead to higher market volatility. Another issue related to undistributed market share is the case where the collapse of an asset can crash the entire market, as demonstrated by the FTX collapse in 2022.
This asymmetry becomes even more pronounced when considering Binance, the world’s largest crypto exchange. Binance’s share of spot trading volume increased from 38.3% in 2021 to 64.3% in 2023. Interestingly, the total share of the top eight exchanges increased less dramatically, from 84.1% to 89.5%.
It has become apparent that Binance has surpassed most of its closest competitors and solidified its position in the market. The collapse of FTX, which was the third largest exchange at the time, worked in favor of Binance.
The conclusion that can be drawn from this is that Binance was the only failure point for the industry. As a result, regulatory pressures and security breaches gradually affected the market value of crypto assets.
Declining Market Depth of Binance
In contrast, Binance’s market depth has significantly decreased, from 42% in 2021 to 30.7% in 2023. This can be attributed to the lawsuit filed by the SEC against the platform and the freezing of its assets by its American branch, which led to the escape of market participants.
The decrease in Binance’s market depth resulted in a decrease in the share of the top eight exchanges. However, it still remained above 90% at the time of writing.
